State of the states in '03: broke and scared

Even the most starry-eyed optimist couldn't put a happy spin on Federal Sources Inc.'s 9th annual State of the States conference in Washington earlier this month.

Two years ago, Jim Kane, president of the McLean, Va., market research company, characterized the state and local market as 'a buy.' Last year, he called it 'a hold' but still attractive.

This year, Kane's words were 'fragmented,' 'budget deficits' and 'faltering economy.' When Federal Sources analyzed 43 governors' state of the state speeches, 'they talked about restoring stability and responsibility. That's a significant shift from last year, when they were saying, 'Let's soften the impact,' ' he said.

The economic downturn has walloped states with the worst budget crisis since World War II. Eighteen of the 37 states with deficits face shortfalls greater than 10 percent, Kane said. Last year, only six out of 42 had deficits.

States have already have dipped into their rainy-day funds and reorganized departments, Kane said. Now they are going to have to reduce local aid, furlough employees and institute early retirement programs.

Kane still found a few bright spots. 'I think this provides the IT industry with some opportunities,' he said. 'State and local governments can leverage IT to get productivity gains in the face of strong fiscal pressures.'

But homeland security IT is not the mother lode in the state and local hills, Kane said. Federal Sources found that the bulk of homeland security IT funds will go to federal activities, not state and local. Homeland security IT works out to about 5 percent of the overall IT market, he said.

'Go ahead and pursue homeland security business, but it's not a bonanza,' he said. 'It's not billions and billions of dollars.'

Keynoter Gerry Wethington, Missouri CIO and president of the National Association of State Chief Information Officers, said states are struggling to fortify homeland security at a time of huge budget cuts.

Wethington stressed the need for states to share daa and develop common standards, 'but there's no indication we'll get out of silo-based funding anytime soon,' he said. 'This is definitely not the time to be reaching for shiny objects in IT. And we can't wait until the economy turns around and go back to the way we did it before. That bridge has been burned.'